Question

Compare and contrast the revenue recognition criteria for the sale of goods in a supermarket with those for the rendering of services in a construction industry. Explain specifically in context to the two industry..

Answer 1

Revenue recognition is fone as per relevant accounting standards.For sale of goods, it is recognised only in when following condition are satisfied:

1. transfer of title of goods or risk reward to ownership has been made to Buyer .and

2. it ia probable and certain to collect the payment i.e there is no uncertainty vo the subsequent payment.

However, in different cases, recognition is to be made in different basis like

For sale of goods on approval basis: On reciept of approval for sale .

For sale on consignment basis: when sale is done by Consigner.

For services ,the conditions for Revenue recognition are:.service has been supplied to Buyer and there is no uncertainty as to collection of consideration.

But if services are provided for longer period then , recognition should be done using proportionate method.

In the given case ,

Revenue recognition for sale of goods in supermarket is at once sale and Hence recognised as and when such conditions as above mentioned for goods aur fulfilled.

But in case of services by construction sector ,it is a long term process and Hence as per percentage completion method , the Revenue should be recognised.

For example: The contract value is $500 lakhs, and payment done till the end of Financial year is just 25%,then Revenue for the period should be recognised for only 25% of contract value.